Q1 2002 Earnings Release

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Q1 2002 Earnings Release

  1. 1. Ed Gams Sr. VP & Director Investor Relations (847) 576-6873 or Bob Hubberts Manager Investor Relations (847) 576-4995 FOR IMMEDIATE RELEASE April 16, 2002 MOTOROLA REPORTS FIRST-QUARTER RESULTS ?? Results exceed consensus expectations and earlier guidance ?? Positive operating cash flow of approximately $150 million SCHAUMBURG, Ill. - Motorola, Inc. (NYSE:MOT) today reported sales of $6.0 billion in the first quarter of 2002. For ongoing operations, which exclude exited businesses, this is a decrease of 20 percent from $7.5 billion a year earlier. Excluding special items, the company incurred a net loss of $174 million, or (8) cents per share, compared with a net loss of $211 million, or (10) cents per share, in the year-ago quarter. Edward Breen, president and chief operating officer, said, “We are making solid progress in repositioning Motorola to return to profitability in the second half of this year as our end markets recover. We have demonstrated the ability to lower our break-even sales level, which is now reduced by more than 20 percent from its peak in 2000. Our focus on balance sheet management continues to yield solid results. During the past quarter, we generated operating cash flow of approximately $150 million on top of the $2.0 billion generated for the full year 2001.” 1
  2. 2. In the first quarter of 2002, Motorola reported special items resulting in a net charge of $388 million pre-tax, or $275 million after-tax. In the first quarter of 2001, Motorola reported special items resulting in a net charge of $279 million pre-tax, or $327 million after-tax. (Details of the special items are presented in a table preceding the footnotes at the end of this press release.) Presented on an as reported basis in accordance with U.S. generally accepted accounting principles (GAAP), the company reported first-quarter 2002 sales of $6.0 billion, compared with sales of $7.7 billion a year earlier. The GAAP net loss was $449 million, or (20) cents per share, compared with a net loss of $533 million, or (24) cents per share, for the first quarter of 2001. Breen reviewed the following results of major operations for the first quarter of 2002 compared with the first quarter of 2001. This review is based on ongoing operations, excluding special items. Personal Communications Segment Segment sales were $2.3 billion, up 1 percent from the comparable year-ago quarter. Orders were $2.5 billion, down 11 percent from a year ago. Excluding special items, the segment recorded operating earnings of $108 million versus an operating loss of $382 million a year ago. This was the segment’s third consecutive quarter of positive operating earnings. Improvements in operating earnings, versus last year, were driven by improved gross margins, lower research and development expenses and lower selling, general and administrative expenses. During the quarter, Motorola introduced a host of new products from its 2002 portfolio, including six new, distinctively designed handsets, three existing handset models with additional enhanced technology and eight companion accessories that provide additional 2
  3. 3. entertainment and functionality. Among the new handsets are the A820 and the i95cl iDEN handsets. Motorola’s A820 meets a full array of enterprise communication and entertainment needs in one handheld, compact device with a color display and is expected to be the first commercially available handset for third generation (3G) systems. The i95cl boasts a large color display that utilizes the advantages of Java™ technology by enabling enhanced current mobile applications including entertainment and graphics, and future applications including mapping and streaming video. The new 2002 portfolio includes fashionable form factors such as the quot;swivel-flipquot; V70 handset; color displays on the T720, A820, i95cl and the entire set of offerings for Korea; and Enhanced Messaging Service (EMS) capabilities featured on models including the A388, T720, and C330, which are winning marketplace recognition. Additionally, at the entry level, the C330 provides the youth/mass-market segment a cost-effective and feature-rich wireless communication handset with EMS, polyphonic audio, and digital and physical personalization options for both carriers and consumers. On April 15, Motorola said it plans to collaborate with Siemens Information and Communication Mobile to develop new handsets for Universal Mobile Telecommunications Systems (UMTS) based on Motorola’s i.300 Innovative Convergence™ platform (for more information see Semiconductor Products Segment report below). Motorola also said it would, starting in the fourth quarter, supply Siemens with Motorola’s new A820 handset which Siemens will, in turn, market under its own name. It's the first time Motorola will manufacture handsets that will be sold to a competing wireless handset producer. Motorola’s A820 handset is based on the i.300 Innovative Convergence platform. Motorola also continued to strengthen its leadership position in 2.5 generation (2.5G) General Packet Radio Service (GPRS) and Java 2 Platform, Micro Edition (J2ME™), which enable consumers to continually upgrade the applications on a device. 3
  4. 4. Motorola today has a broad product portfolio, including more than a dozen wireless phones with J2ME technology, a robust Java download solution, more than 100 branded applications and a full- service program to assist software developers in creating and certifying new wireless applications. To help drive the availability of applications and services, Motorola launched its Mobile Services Café, which includes a rich menu of mobile services, applications and middleware. This enables network operators to more quickly offer customers a wide selection of content and services that can be customized to help transform any Internet-enabled mobile device into an quot;extensionquot; of the user’s personality and preferences. Global Telecom Solutions Segment Segment sales were $1.1 billion, down 36 percent compared to a year ago. Orders declined 17 percent to $1.3 billion. Excluding special items, the segment reported an operating loss of $49 million, compared with operating earnings of $42 million a year ago. The loss was due to lower sales. During the quarter, Japan’s KDDI successfully launched its third generation (3G) Code Division Multiple Access (CDMA) 2000 1X network services nationwide using Motorola equipment. Motorola also announced two other major contracts in Asia, a $253 million Global System for Mobile (GSM) communications system with TA Orange in Thailand and a $170 million dual-band GSM network contract with Telkomsel in Indonesia. In January, China Unicom launched its nationwide CDMA network services for which Motorola was the largest infrastructure provider. Motorola completed its first UMTS voice call that is in compliance with Third Generation Partnership Project Standard Release 99 version. The achievement is a major step towards successful deployment of future UMTS networks. 4
  5. 5. Commercial, Government and Industrial Solutions Segment Segment sales were $799 million, down 10 percent compared to a year ago. Orders decreased 12 percent to $874 million. Operating earnings, excluding special items, increased to $53 million from $43 million a year ago. Improvements in operating earnings, versus last year, were driven by lower research and development expenses and lower selling, general and administrative expenses. During the quarter, Motorola received an order from ARINC Incorporated for 25,000 handheld data terminals that will be used by the air transport industry for cargo tracking and positive bag matching as well as asset and security management at airports. Motorola also received an order from Montgomery County, Penn., to upgrade its public safety voice and data systems and was awarded a contract to supply an 800 MHz iDEN system to Unicom Guomai, the leading public access mobile radio service provider in China. Other equipment orders were received in China, Egypt, El Salvador, Haiti, Indonesia, Japan, Saudi Arabia, the United States and Venezuela. Motorola successfully implemented South Africa’s first digital public safety radio system, a TETRA-compliant system in the City of Cape Town. Motorola also announced it will design, manufacture and market infrastructure and portable and mobile two-way radio products for use in the 220 MHz band by enterprises and private carriers in the U.S. Motorola’s Printrak subsidiary will provide a Regional Automated Fingerprint Identification Access System for use throughout Canada. The subsidiary will also provide a Canada-wide security network for airports and border patrol sites based on Motorola’s LiveScan Station 3000N™ product, an integrated booking solution with mugshot, palm and fingerprint capabilities in a single, stand-alone unit. 5
  6. 6. Broadband Communications Segment Segment sales were $525 million, down 36 percent compared to a year ago. Orders decreased 41 percent to $537 million as a result of the continuing slow down by cable operators in making capital investments and deploying subscriber equipment. Operating earnings, excluding special items, decreased to $59 million compared with $118 million a year ago due to the decline in sales partially offset by aggressive product cost reductions, supply chain savings and overhead cost control actions in 2001. In the first quarter, Motorola completed its acquisition of Synchronous, Inc., a leading provider of fiber optic transmission systems for video, data and voice transmission. The acquisition expands Motorola’s existing optical product suite with best-in- class optical networking capabilities, including Synchronous’ 1550nm technology. Time Warner Cable approved Motorola’s Omnistar GX2 optical broadband transmission platform, the first to meet Time Warner Cable’s stringent standards for next-generation, 1310nm high- density optical transmitters. In Germany, eKabel awarded Motorola the network upgrade for its existing broadband network. Motorola was selected by Digeo, Inc. to collaboratively design and manufacture a new class of advanced set-top devices called broadband media centers (BMC). Charter Communications is expected to be the first cable operator to deploy the BMC this fall. Motorola also announced a new SURFboard® cable modem retail distribution agreement with Micro Center, a national computer retailer operating in 17 major U.S. markets. Through February, industry market data indicates that Motorola has outsold all other modem suppliers combined in retail outlets. Motorola and Nortel announced an agreement to create and deliver an integrated voice over IP (VoIP) solution for the broadband cable market. This non-exclusive agreement is intended to simplify the deployment of VoIP equipment by broadband network operators worldwide. 6
  7. 7. Shortly after the quarter ended, Motorola announced that Cox Communications of Las Vegas, one of the fastest-growing regional cable systems, had surpassed industry norms by supporting more than 14,500 cable modem customers on a single Motorola Broadband Services Router (BSR 64000). Semiconductor Products Segment Segment sales were $1.1 billion, down 26 percent compared to the year-ago quarter. Orders were up 18 percent to $1.3 billion. Excluding special items, the segment had an operating loss of $226 million versus an operating loss of $95 million a year ago. The larger loss compared to the year-ago quarter was due to the decline in sales. The losses reported during both quarters were the result of the worldwide semiconductor industry’s sharpest decline in history. On April 12, Motorola announced plans to join two other leading semiconductor manufacturers, Philips and STMicroelectronics, to create a five-year, jointly funded alliance aimed at developing breakthrough, future-generation technologies and chipset solutions more quickly and cost- effectively. Sharing the development costs of advanced technologies is a significant next step in the implementation of the segment’s new business model. The alliance is expected to reduce Motorola’s expenses and capital investments associated with maintaining a leadership position in next generation process technology. Initial savings from the venture are anticipated in late 2003 and are eventually expected to reduce by two-thirds the cost of maintaining this aspect of the segment’s process technology roadmap. On April 15, Motorola said it plans to supply Siemens Information and Communication Mobile with its new i.300 Innovative Convergence platform chips for building third generation 3G handsets in early 2004. Motorola’s i.300 is a 7
  8. 8. comprehensive, integrated solution that provides mobile handset users faster Internet access on 3G UMTS wireless systems. During the first quarter, Motorola announced that Eastern Communications Co. Ltd. (Eastcom) had selected the i.250 Innovative Convergence 2.5G wireless platform to develop state- of-the-art cellular phones for GSM/GPRS. Eastcom, a large manufacturer of cellular handsets in China, now joins Benq Corporation (formerly Acer Communication and Multimedia, Inc.) and Siemens as the third merchant market customer to select Motorola’s silicon-to-software platform to build either 2.5G or 3G wireless handsets. Siemens VDO Automotive, one of the world's largest suppliers of automotive electronic systems, chose Motorola's MPC500 family of 32-bit micro-controllers for its integrated power-train management systems to increase fuel economy and reduce emissions. An agreement was also announced with Fonix® Corporation to integrate that company's software development kit for embedded speech recognition technology with Motorola's mobileGT™ development platform for automotive telematics systems. This will enable auto manufacturers to use speech recognition to provide drivers with hands-free management of radios, security systems and climate controls. Integrated Electronic Systems Segment Segment sales were $509 million, down 20 percent compared to a year ago. Orders increased 11 percent to $570 million. Excluding special items, the segment reported operating earnings of $24 million versus $22 million a year ago. During the quarter, Automotive Communications and Electronic Systems Group sales were up and orders increased very significantly. Motorola Computer Group sales and orders were down very significantly due to the continuing slump in the telecommunications industry. 8
  9. 9. Energy Systems Group sales were lower, however, orders increased compared to the year-ago quarter. The group reported another record quarter of shipments of notebook computer battery packs to manufacturers of personal computers. Review and Outlook Christopher B. Galvin, Motorola's chairman and CEO, said quot;These are challenging and turbulent markets worldwide and economic and political volatility makes predictions uncertain. Still, we continue to believe Motorola will return to profitability during the second half of 2002 and be profitable for the full year, excluding special items and barring any unforeseen political or economic disruptions. We also believe the U.S. and global economies should firm in the second half of 2002 and further improve in 2003 given stable world affairs. “Motorola will continue to achieve its improving financial performance by adhering to my five-point plan to enhance shareholder value: continual strengthening of our management team; an aggressive focus on the balance sheet; lowering the break-even sales level by reducing selling, general and administrative expenses and manufacturing costs; growth through innovative products, software applications and customer relationships; and constant evaluation of strategic options and business portfolio. ”Over the last 18 months I have named new leaders in approximately 70 percent of Motorola’s 100 most leveraged management positions corporate-wide. This refreshed leadership team shares a commitment to our shareholders to operate with extraordinary financial discipline. We intend to excel in every aspect of our business, to exceed the expectations of our customers, to drive profits and cash, to return Motorola to it’s historic double-digit growth in the major business segments we serve and to enhance value for our shareholders.” 9
  10. 10. Consolidated Results for Ongoing Operations, Excluding Results of Businesses Sold and Special Items Excluding the results of the two businesses sold during 2001 and special items, a comparison of results from ongoing operations is as follows: (Dollars in millions, except per-share amounts) First Quarter 2002 2001 Sales $6,023 $7,486 Net Loss $(174) $(211) Net Loss Per Share $(.08) $(.10) Net Margin on Sales -2.9% -2.8% Consolidated GAAP Results On an as reported GAAP basis, a comparison of results from operations is as follows: (Dollars in millions, except per-share amounts) First Quarter 2002 2001 Sales $6,023 $7,683 Net Loss $(449) $(533) Net Loss Per Share $(.20) $(.24) Net Margin on Sales -7.5% -6.9% Special Items Description: For the first quarters of 2002 and 2001, respectively, Motorola reported special items as follows: (Dollars in millions, bracketed amounts represent income) First Quarter 2002 2001 Employee Severance $53 $220 Exit Costs (1) 33 10
  11. 11. Fixed Asset Impairments 155 108 Investment Impairments 188 29 Goodwill/Intangible Asset Impairments -- 72 Amortization of Intangibles/ Goodwill 14 43 In-Process Research and Development Charges 11 -- Product Portfolio Simplification Write-Offs -- 404 Other (21) (16) Gains on Sales of Investments and Businesses (11) (614) Pre-tax Special Items 388 279 Income Tax Provision (113) 48 After-tax Special Items $275 $327 Notes: The use of the word “significant” in this press release indicates a change of greater than 25 percent. The use of the words “very significant” indicates a change of greater than 50 percent. Business Risks: Statements in this press release that are not historical facts are forward-looking statements based on current expectations that involve risks and uncertainties. Such forward-looking statements include, but are not limited to, statements about: the company’s return to profitability; the impact of strategic alliances including the new semiconductor alliance; the impact of design wins on sales and earnings; the commercial availability and performance of new products and applications; as well as, the statements in quot;Review and Outlookquot;. Motorola wishes to caution the reader that the factors below and those on pages F-35 through F-40 of the appendix to Motorola's Proxy Statement for the 2002 annual meeting of stockholders and in its other SEC filings could cause Motorola's actual results to differ materially from those stated in the forward-looking statements. These factors include: (i) the company's ability to effectively carry out the planned cost-reduction actions; (ii) the potential for unanticipated results from cost-reduction activities on productivity; (iii) the rate of the recovery in the overall economy and the uncertainty of current economic conditions; (iv) the impact of ongoing tax relief, interest rate reduction and liquidity infusion efforts to stimulate the economy; (v) lack of predictability of future operating results; (vi) the decline in 11
  12. 12. the telecommunications, semiconductor and broadband industries; (vii) the company's continuing ability to access the capital markets on favorable terms; (viii) demand for the company's products, including products related to new technologies; (ix) the company's ability to continue to increase profitability and market share in its wireless handset business; (x) the company's success in the emerging 3G market; (xi) the demand for vendor financing and the company's ability to provide that financing in order to remain competitive; (xii) unexpected liabilities or expenses, including unfavorable outcomes to any currently pending or future litigation, including any relating to the Iridium project; (xiii) the levels at which design wins become actual orders and sales; (xiv) the success of alliances and agreements with other companies to develop new products, technologies and services; (xv) difficulties in integrating the operations of newly acquired businesses and achieving strategic objectives, cost savings and other benefits; (xvi) volatility in the market value of securities held by Motorola; (xvii) the impact of foreign currency fluctuations; and (xviii) the impact of changes in governmental policies, laws or regulations. About Motorola: MOTOROLA and the Stylized M Logo are registered in the U.S. Patent & Trademark Office. All other product or service names are the property of their respective owners. Motorola, Inc. 2002 Java and all other Java-based marks are trademarks or registered trademarks of Sun Microsystems, Inc. in the U.S. and other countries. Motorola, Inc. (NYSE:MOT) is a global leader in providing integrated communications and embedded electronic solutions. Sales in 2001 were $30 billion. ### 12
  13. 13. Motorola, Inc. and Subsidiaries Consolidated Statements of Operations (In millions, except per share amounts) For the Quarter Ended March 30, 2002 Ongoing Exited Operations Special Items Excluding Businesses Excluding GAAP Results Inc/(Exp) Special Items Inc/(Exp) Special Items Net sales $ 6,023 $ -$ 6,023 $ -$ 6,023 Costs of sales 4,249 (8) 4,241 - 4,241 Gross margin 1,774 (8) 1,782 - 1,782 Selling, general and administrative expenses 1,035 (2) 1,033 - 1,033 Research and development expenses 892 - 892 - 892 Reorganization of businesses 198 (198) - - - Other charges 3 (3) - - - Operating loss (354) (211) (143) - (143) Other income/(expense) Interest expense, net (116) - (116) - (116) Gains on sales of investments and businesses 11 11 - - - Other (192) (188) (4) - (4) Total other income/(expense) (297) (177) (120) - (120) Loss before income taxes (651) (388) (263) - (263) Income tax provision (202) 113 (89) - (89) Net loss $ (449) $ (275) $ (174) $ -$ (174) Net loss per common share Basic $ (0.20) $ (0.08) Diluted $ (0.20) $ (0.08) Weighted average common shares outstanding Basic 2,253.5 2,253.5 Diluted 2,253.5 2,253.5 Dividends paid per share $ 0.04 $ 0.04 Net margin on sales -7.5% -2.9% Return on average invested capital -19.0% For the Quarter Ended March 31, 2001 Ongoing Exited Operations Special Items Excluding Businesses Excluding GAAP Results Inc/(Exp) Special Items Inc/(Exp) Special Items Net sales $ 7,683 $ -$ 7,683 $ 197 $ 7,486 Costs of sales 6,117 (524) 5,593 (135) 5,458 Gross margin 1,566 (524) 2,090 62 2,028 Selling, general and administrative expenses 1,187 (27) 1,160 (42) 1,118 Research and development expenses 1,172 - 1,172 (11) 1,161 Reorganization of businesses 241 (241) - - - Other charges 72 (72) - - - Operating earnings (loss) (1,106) (864) (242) 9 (251) Other income/(expense) Interest expense, net (61) - (61) (2) (59) Gains on sales of investments and businesses 614 614 - - - Other (38) (29) (9) - (9) Total other income/(expense) 515 585 (70) (2) (68) Earnings (loss) before income taxes (591) (279) (312) 7 (319) Income tax provision (58) (48) (106) (2) (108) Net earnings (loss) $ (533) $ (327) $ (206) $ 5$ (211) 13
  14. 14. Motorola, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In millions) ASSETS March 30, December 31, 2002 2001 Cash and cash equivalents $ 5,879 $ 6,082 Short-term investments 121 80 Accounts receivable, net 4,115 4,583 Inventories, net 2,530 2,756 Other current assets 3,623 3,648 Total current assets 16,268 17,149 Property, plant and equipment, net 8,288 8,913 Investments 2,032 2,995 Other assets 5,164 4,341 Total assets $ 31,752 $ 33,398 LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable and current portion of long-term debt $ 1,576 $ 870 Accounts payable 2,197 2,434 Accrued liabilities 5,815 6,394 Total current liabilities 9,588 9,698 Long-term debt 7,460 8,372 Other liabilities 1,198 1,152 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely company- guaranteed debentures 485 485 Stockholders' equity 13,021 13,691 Total liabilities and stockholders' equity $ 31,752 $ 33,398 14
  15. 15. Motorola, Inc. and Subsidiaries Segment Information (In millions) Summarized below are the Company's sales as defined by reportable segment for the three months ended March 30, 2002 and March 31, 2001. For the Quarter Ended March 30, 2002 Segment Net Sales Exited Businesses Ongoing % Change GAAP Results Inc/(Exp) Operations from 2001 Personal Communications Segment $ 2,301 $ - $ 2,301 1% Global Telecom Solutions Segment 1,069 - 1,069 -36% Commercial, Govt, and Industrial Solutions Segment 799 - 799 -10% Broadband Communications Segment 525 - 525 -36% Semiconductor Products Segment 1,093 - 1,093 -26% Integrated Electronic Systems Segment 509 - 509 -20% Other Products Segment 107 - 107 -47% Adjustments & Eliminations (380) - (380) 22% Segment Totals $ 6,023 $ - $ 6,023 -20% For the Quarter Ended March 31, 2001 Segment Net Sales Exited Businesses Ongoing GAAP Results Inc/(Exp) Operations Personal Communications Segment $ 2,275 $ - $ 2,275 Global Telecom Solutions Segment 1,669 - 1,669 Commercial, Govt, and Industrial Solutions Segment 1,043 154 889 Broadband Communications Segment 818 - 818 Semiconductor Products Segment 1,483 - 1,483 Integrated Electronic Systems Segment 637 - 637 Other Products Segment 245 43 202 Adjustments & Eliminations (487) - (487) Segment Totals $ 7,683 $ 197 $ 7,486 15
  16. 16. Motorola, Inc. and Subsidiaries Segment Information (In millions) Summarized below are the Company's operating earnings (loss) as defined by reportable segment for the three months ended March 30, 2002 and March 31, 2001. For the Quarter Ended March 30, 2002 Segment Operating Earnings (Loss) Ongoing Exited Operations Special Items Excluding Businesses Excluding GAAP Results Inc/(Exp) Special Items Inc/(Exp) Special Items % Sales Personal Communications Segment $ (34) $ (142) $ 108 $ - $ 108 5% Global Telecom Solutions Segment (50) (1) (49) - (49) -5% Commercial, Govt, and Industrial Solutions Segment 41 (12) 53 - 53 7% Broadband Communications Segment 58 (1) 59 - 59 11% Semiconductor Products Segment (238) (12) (226) - (226) -21% Integrated Electronic Systems Segment 9 (15) 24 - 24 5% Other Products Segment (91) (19) (72) - (72) -67% Adjustments & Eliminations - - - - - 0% Segment Totals (305) (202) (103) - (103) -2% General Corporate (49) (9) (40) - (40) Operating Earnings (Loss) $ (354) $ (211) $ (143) $ - $ (143) -2% For the Quarter Ended March 31, 2001 Segment Operating Earnings (Loss) Ongoing Exited Operations Special Items Excluding Businesses Excluding GAAP Results Inc/(Exp) Special Items Inc/(Exp) Special Items % Sales Personal Communications Segment $ (880) $ (498) $ (382) $ - $ (382) -17% Global Telecom Solutions Segment 27 (15) 42 - 42 3% Commercial, Govt, and Industrial Solutions Segment (6) (63) 57 14 43 5% Broadband Communications Segment 101 (17) 118 - 118 14% Semiconductor Products Segment (251) (156) (95) - (95) -6% Integrated Electronic Systems Segment 7 (15) 22 - 22 3% Other Products Segment (97) (77) (20) (5) (15) -7% Adjustments & Eliminations 30 - 30 - 30 -6% Segment Totals (1,069) (841) (228) 9 (237) -3% General Corporate (37) (23) (14) - (14) Operating Earnings (Loss) $ (1,106) $ (864) $ (242) $ 9$ (251) -3% 16

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